What is a collateral assignment split dollar plan?
Under a collateral assignment split dollar arrangement, the business loans a key employee money to pay the premium on a life insurance policy. He or she owns the policy and has the ability to name the beneficiary, and is taxed on the interest-free element of the loan.
What are the two basic types of split dollar plans?
There are two types of Split Dollar arrangements: Endorsement (or Economic Benefit) and Loan Regime. Endorsement Arrangement: The employer pays all of the premiums and owns all of the policy cash value.
What is a split dollar loan?
In a split-dollar plan, an employer and employee execute a written agreement that outlines how they will share the premium cost, cash value, and death benefit of a permanent life insurance policy. Split-dollar plans also require record-keeping and annual tax reporting.
What is an executive bonus plan?
An executive bonus plan (Section 162) is a way for business owners or companies to provide additional supplemental benefits to key employees or executives of their choice. With an executive bonus plan, the business can use tax deductible company funds to selectively provide valued benefits to key people.
What is one of the major disadvantages of split dollar plans?
Disadvantages of split dollar life insurance plans Your business will generally receive no tax deduction for its share of premium payments under the split dollar plan. Depending on how the agreement is structured, employees may have to pay income taxes each year on the value of the economic benefits provided to them.
What are the different types of split dollar plans?
There are 2 types of split dollar plans.
- Collateral assignment / loan regime.
- Endorsement split dollar / economic benefit regime.
Who pays the premiums in a split dollar plan?
the employer
The endorsement split dollar plan is one that is owned by the employer. The premiums are paid by the employer and the beneficiary is listed as the employee.
What is a Section 162 Executive bonus plan?
A 162 Executive Bonus plan allows a business to provide life and/or disability income insurance to key executives using tax deductible dollars. In practice, the business may actually pay the premiums directly to the insurance company, then include the amounts in the executives’ reported W-2 income.
Are Split dollar premiums tax deductible?
Under the proposed regulations, it is clear that unless the premiums are treated as a loan, policy equity will be taxed as it accrues. Terminating the split-dollar plan before death avoided the income (and possibly gift) tax implications of skyrocketing term costs as the insured aged.
What are section 212 expenses?
Section 212 provides that in the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year (1) for the production or collection of income, (2) for the management, conservation, or maintenance of property held for the production of …
Who pays the premium in an executive bonus plan?
The employee is the owner of the policy, and gets to determine the beneficiaries and manage the funds within the policy. The employer covers the cost of the policy by periodically giving the employee a bonus big enough to pay the policy premiums. The employee then pays the premiums to the insurance carrier.
Are section 212 expenses deductible 2020?
212, the advisory fees and other investment expenses of the fund are now no longer deductible to fund investors that are individuals or similarly taxed entities, such as trusts.